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Croatia overview

In Croatia we focus on:

Mitigating the impact of the crisis and restoring sustainable growth. Croatia was one of the region's countries worst hit by the global crisis of 2008-09 and has struggled towards recovery ever since. In the context of the new joint IFI action plan for growth in central and south-eastern Europe, the EBRD is tailoring its financing to meet potential demand for long-term investment as well as working capital financing, operational and financial restructuring. Support to the corporate sector is aimed at foreign investors and local companies. Our investments will be strengthened by policy dialogue to promote economic restructuring, diversification and improved business climate conditions and corporate governance.

Leveraging the benefits of EU accession to advance transition. As a EU member, Croatia has access to substantial amounts of structural funds, but experience shows that new members often have difficulty absorbing these funds effectively. In addition, private sector companies may find it difficult to meet the challenge of enhanced competition. We are working closely with the authorities and the EU in selected areas where structural funds can be blended with those of the EBRD to accelerate transition, including in the municipal sector. The EBRD is also providing financing, mainly though financial intermediaries, to facilitate investments by corporates to enhance their competitiveness.

Restructuring and commercialising public sector enterprises. One of the reasons for Croatia’s continued stagnation is the delay in restructuring large infrastructure utilities. The government has started addressing this problem and EU accession makes reforming public sector entities an even more urgent task, as the country’s absorption capacity is conditioned on capacity enhancement, financial and operational improvement at public utilities. The EBRD is working with the authorities to accelerate the reform of publicly-owned companies in the infrastructure sector.

The Croatian economy continued to expand in 2016 (2.9 per cent), underpinned by a good tourist season, strong external demand and, on average, lower oil prices. The growth momentum may stay at 2.9 per cent in 2017, while in 2018 we project a slight slowdown to 2.6 per cent, due partly to the high base effect. Growth will be mainly driven by domestic demand – consumption supported by tax cuts, strong tourism revenues and falling unemployment, as well as investment which is benefiting from favourable financial conditions, lower corporate tax and expected improvements in the absorption capacity of EU funds. The contribution from net exports is unlikely to be significant due to rising imports from higher domestic demand. The short-term outlook may be negatively affected by potential spill-overs from Agrokor's financial troubles on its subsidiaries and suppliers, but medium-term growth prospects also remain weak due to long-standing structural weaknesses, including high corporate over-indebtedness, still limited business environment reforms, and slow EU fund absorption – all of which need to be addressed consistently.